MODERN CONDITION: MARKET VALUE OR USER VALUE?

Dr. Nikolai TRIFONOV, OM, BSV, FRICS, HonAAPOR, HonOKO, HonBSV

Belarusian State University

P.O.Box 11, 220029, Minsk, Belarus

Tel.: +375 29 6776776, Tel./facs.: +375 17 3343608E-mail: [email protected]

MODERN CONDITION: MARKET VALUE OR USER

VALUE?

Table of Contents

1. Introduction

2. Market value

3. Complications in Application

4. User value

5. Algorithm of calculation

20.04.23 Prof. Nikolai TRIFONOV

ERES Conference 2010 in Milan

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Introduction

First half of last century –

traditional approaches to valuationLast decade of the century –

new essential features in emerging marketsFrom time of financial crisis –

such features correspond to all markets

Market value

Methodology of valuation most widespread now is based on concept of market value where

a willing seller and a willing buyer decide to change a valuation subject for a calculated sum of money on the valuation date on the base of well-done marketing (IVS).



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Market value (contd.)

This is a conception of

a value in exchange

Based on the assumption of

a stability of the market

of a valuation subject

(a real estate or a business).20.04.23 Prof. Nikolai TRIFONOV


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Complications in Application

Approximation of a market value

looks strange for changing markets:emerging markets with its non-

transparencyall markets

The stable markets exist only in imagination



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Modern condition

Prices are not established by what has gone before or even what exists now, but by buyers’ and sellers’ future needs and expectations.

A willing seller and a willing buyer have typically ignored market value, but are interested in value in use.



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Value in UseValue in use is a value of concrete property at

concrete use for the concrete user (IVS).

In book keeping a value in use is the value of calculated future cash flows discounted to a present situation which presumably will arise from continuation of use of an active and from its sale in the end of its term of useful services (IFRS 5, app. A).



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User valueInvestor is not interested in value in

current use, but value in the highest& best use.

We have introduced this kind of value and name it the "user value".

User value is a current value of the future incomes of valuation subject in highest& best use.



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Algorithm of calculation

1. To define the highest&best use of a valuation subject.

2. To forecast the incomes of this use, including return of the capital by sale in the end of use.

3. To predict changes of capitalization rate in the market of valuation subject.

4. To discount future incomes to the valuation date.



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Dr. Nikolai TrifonovManaging Director of the Council of Valuers’

Associations of the CIS

Chairman of the Belarusian Society of Valuers

Fellow of Royal Institution of Chartered Surveyors

Honourary member of Associacao Portuguese de Avaliadores de Activos Fixos

Honourary member of Assocation of Kyrgysian

Appraisers

Honourary member of Osteuropaeische Sachverstaendige Verein

Order of Merit in Valuation (Russia)20.04.23 Prof. Nikolai TRIFONOV


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MODERN CONDITION: MARKET VALUE OR USER VALUE?

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